Value investing may be on the cusp of a long awaited resurgence, and investors can capitalize on that trend without being fully allocated to said stocks with the FlexShares Morningstar U.S. Market Factor Tilt Index Fund (NYSEArca: TILT).
TILT is a compelling way for investors to revisit value stocks because it’s not a dedicated value ETF. Instead, the FlexShares fund allocates just over 40% of its weight to value stocks.
TILT tries to provides enhanced exposure to U.S. equities by tilting the portfolio toward long-term growth potential of small-cap and value stocks.
“Value investing is an investment strategy that involves buying stocks that are underpriced compared to market averages,” reports Business Insider. “Rather than targeting the most hyped or best-performing equities, it seeks out neglected stocks in the hope that the market will realize the errors of its ways and belatedly start to push up those shares’ prices.”
TILTing Toward Value
Among the major investment factors, none have vexed investors more than value in recent years. In this vein, TILT holds tremendous utility as an exchange traded fund that’s not 100% committed to value.
Over the past three years, the FlexShares ETF is beating the S&P 500 Value Index by more than 1,100 basis points.
“At its core, value investing is all about buying low and selling high. In practice, the approach works under the premise that with enough patience, a company’s intrinsic value and market value align, resulting in big future gains,” according to Business Insider.
TILT features some growth and size factor exposure, reducing the risks associated with pure value funds.
Growth stocks may be seen as exorbitant and overvalued, causing some investors to favor value stocks, which are considered undervalued by the market. Value stocks tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). While they generally have solid fundamentals, value stocks may have lost popularity in the market and are considered bargain priced compared with their competitors. Still, TILT is relevant today.
“While average price-to-earnings ratios will vary over time, the S&P 500’s P/E ratio passed 30 in 2020, meaning that you’d spend $30 for every $1 of profit the companies in the index earn (on average). It had been just above 20 in 2019 and was as low as 13 in September 2011,” concludes Business Insider.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.